When couples divorce, division of property can, and typically is, a highly contentious issue. Given that California is a community property state, each spouse is assumed to have an equal ownership in all assets acquired during marriage unless proven otherwise.
Property needs to be valued before it can be divided. This is not as easy as it sounds and could require multiple professionals such as real property appraisers, business appraisers, and pension valuation analysts. Determinations of what constitutes community property as compared to separate property must be made. Often times, the parties need assistance with establishing budgets due to their changing financial circumstances.
At Heberger & Company, we have years of experience in assisting attorneys and their clients in negotiating property division, valuation of business interests, supporting separate property claims, performing marital standard of living analysis, and analyzing cash flow for the purposes of determining spousal and child support.
Our goal is to assemble the financial, and non-financial, components in an understandable and comprehensive format. This assists clients and their Counsel such that all the information is accumulated in one place to help facilitate negotiating an acceptable agreement for both parties.
We sit down with one, or both, parties and assist them in preparing and understanding their respective budgets. This way, each party has an understanding as to what the other party needs financially. Of course, there are often “wants” that are included with their respective needs.
We look at normal, everyday living expenses to assist with determining the marital standard of living. This involves reviewing statements from various financial institutions such as bank account statements, credit card statements, and investment statements. Normal everyday living expenses also include expenses related to children. Is a nanny needed or will a different daycare provision work? What about out of pocket medical, school, sporting, and other extracurricular expenses for the children?
Budgets accompanied by a martial standard of living analysis will assist clients and their Counsel in determining if there will be a need for spousal support. If so, this will help facilitate the negotiations as it relates to the amount and duration of spousal support.
Determining Interest in Property that was Owned Prior to Marriage (Separate Property) Then Co-Mingled with Community Property
In many cases, prior to marriage, one party owned real estate. All assets acquired before marriage are considered separate property. If mortgage payments were made from income earned after marriage, then the Community is now obtaining an interest in what was previously considered separate property.
We assist clients and their Counsel in understanding the application of the Moore-Marsden calculation. This calculation applies a pre-existing, court approved, formula to determine how much of the equity in the home is considered community property as compared to separate property. It can be a complicated process that also takes into account substantial improvements to the property, mortgage refinancing, changes of title, and other issues that affect a party’s interest in the property.
The same problem arises with a 401(k) or any other retirement account that was established before the date of the marriage. When contributions are made from community property funds, or subsequent to date of marriage, an apportionment needs to be done to determine how much of the account is considered separate property as compared to community property.
Various statements and other relevant documents are reviewed in order to trace the funds deposited into the account to determine if the deposits were made prior to marriage from separate property, after date of marriage with community property funds, or post date of marriage with separate property funds.
If a business is owned by the couple or if the community acquired an ownership interest during marriage, a value must be placed on the business. The application of valuation principles and various methodologies should be performed by a trained and credentialed professional. John D. “JD” Heberger is licensed by National Association of Certified Valuation Analysts as a Certified Valuation Analyst (CVA).
The valuation process involves detailed financial analysis and the application of various valuation approaches: income approach, asset approach, and market approach. Generally, this analysis requires three to five years of business tax returns, financial statements, and other accounting related items to facilitate the valuation process.
Contact us at Heberger & Company for any accounting services you need. We look forward to assisting attorneys and their clients through the difficult divorce process.